RBI combats rupee slide; cuts USD remittances to $75,000

Struggling to stem the rupee's free fall against the US dollar, the Reserve Bank of India (RBI) on Wednesday announced more measures, which are expected to bring down the demand for US dollar purchases in the domestic currency market.

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RBI combats rupee slide; cuts USD remittances to $75,000

Struggling to stem the rupee's free fall against the US dollar, the Reserve Bank of India (RBI) on Wednesday announced more measures, which are expected to bring down the demand for US dollar purchases in the domestic currency market.

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Moneycontrol Bureau

Struggling to stem the rupee's free fall against the US dollar, the Reserve Bank of India (RBI) on Wednesday announced more measures, which are expected to bring down the demand for US dollar purchases in the domestic currency market.

The central bank capped the limit for Overseas Direct Investment (ODI) under the automatic route for all fresh transactions from 400 percent of the net worth of an Indian party to 100 percent.

"This reduced limit would also apply to remittances made under the ODI scheme by Indian Companies for setting up unincorporated entities outside India in the energy and natural resources sectors," RBI said in a press release.

"This reduction in limit, however, would not apply to ODI by Navratna PSUs, ONGC Videsh and Oil India in overseas unincorporated entities and incorporated entities, in the oil sector."

FDI activities, not covered under the automatic route, requires prior approval from the government. One has to apply to Foreign Investment Promotion Board (FIPB).

Moreover, RBI cut the limit of remittances made by resident individuals from USD 2,00,000 to USD 75,000 per financial year under the Liberalised Remittance Scheme (LRS Scheme).

However, RBI has now allowed resident individuals to set up joint venture (JV)/wholly owned subsidiary (WOS) outside India under the ODI route within the revised LRS limit.

"While current restrictions on the use of LRS for prohibited transactions, such as, margin trading and lottery would continue, use of LRS for acquisition of immovable property outside India directly or indirectly will, henceforth, not be allowed," RBI said.

The Indian rupee on Wednesday closed at 61.43/USD, or 24 paisa lower than its previous closing at 61.19. Since May 30, the Indian rupee has depreciated nearly 9 percent against the greenback.

The present set of measures is aimed at moderating outflows. However, RBI hinted at taking stricter measures if any genuine requirement arises.